Can I leave money to my special needs child/loved one?

Not without first talking to a qualified lawyer experienced in special needs planning! Leaving money outright to your child may make them ineligible to receive government benefits and there may be no one with the legal authority to manage the funds.

If you want your child with special needs to be a beneficiary of your assets, then the beneficiary designation should be to either a Supplemental Needs Trust established under your Will or to a Supplemental Needs Trust that you set up while you are alive.

This will allow your child to maintain government benefits while the Trustee can use the income and principal of the assets for your child’s benefit. You can also direct who will receive the balance of these assets upon the demise of your child. There is no pay back to Medicaid under this type of Trust.

What is a “Memorandum of Intent”?

A Memorandum of Intent contains instructions to a future guardian or caretaker provided by you, the parent, such as discipline, religious preferences, your child’s preferences for entertainment, friends, groups or clubs. You can identify all of your relatives and list the names and addresses of physicians, schools, counselors and attorneys. Think of it as a road map to the life of your child.

Do I need a “Special Needs Trust” or a “Supplemental Needs Trust?

A special needs trust is created with the intent of supplementing a disabled person’s income in order to pay for wants and needs not covered by government benefits.

If there are proceeds from a personal injury or medical malpractice settlement or judgment, then the special needs trust can be a lifesaver because the proceeds can be protected for the injured party while maintaining access to Medicaid, if necessary, to pay for the high cost of extended long term care.
In many states, the terms “special needs trust” and “supplemental needs trust” are used interchangeably. However, in the state of New York, a special needs trust specifically refers to a trust set up for a disabled person who already has his/her own assets, and a supplemental needs trust is set up for a person with disabilities by a third party, such as a parent, for the benefit of such person.

In either case, it is extremely important to make sure that the trust meets the requirements of the government program(s) from which the disabled person currently benefits or is seeking benefits. If the trust does not comply with these requirements, the person with special needs (called the “trust beneficiary”) could lose his or her government benefits!

There are two forms of trusts that allow someone with assets to qualify for Medicaid and SSI: special needs trusts (sometimes referred to as “payback trusts” or “d4a trusts”) and pooled trusts (sometimes referred to as a “d4c trusts”).

A special needs trust (payback trust or d4a trust) can only be created by a parent, grandparent, legal guardian or by Court Order for a disabled person under age 65. Any money that remains in the fund after the beneficiary’s death must be used to reimburse (or pay back) Medicaid.
A pooled trust (d4c trust) is administered by a non-profit organization with the assets of the disabled person held in a separate account for his or her benefit. Depending upon the terms of the trust, the remaining account balance on the death of the person may pass to the charity or have to first be used to pay back Medicaid.

What can a Special Needs Trust pay for?

Food and Shelter (although distributions for food and shelter will cause a disruption or have a negative effect on benefits). It is strongly recommended that these types of distributions should be made with professional guidance from a special needs planning attorney.

Entertainment. Requests for entertainment are generally without issue for the beneficiary and a caregiver. Some states require that the caregiver be a non-family member or a penalty will be imposed. Entertainment which includes food and/or shelter can be problematic, such as a restaurant or even popcorn at a movie, if paid for by the trustee. However, SSA disregards the first $20. So, the Trustee could pay for food, such as popcorn at a movie, or give the beneficiary $20 in cash without affecting SSI benefits.

Vacations. Vacations can be especially problematic since it includes elements of both food and shelter. Cruises or all-inclusive resorts are great options. If the beneficiary requires assistance, a trustee can generally pay for one individual to accompany the beneficiary. More than one caregiver can be paid for as long as the need for such assistance can be properly documented by a physician.

Medical expenses not covered by Medicaid. Most medical expenses are covered by Medicaid. However, there may be certain specialists, therapies or testing that are not. Services like podiatry, non-emergency dental care, glasses, hearing-aids, and chiropractic services can be paid for out of the special needs trust.
Incidentals or on-going expenses. Generally, the provider of a good or service should be paid directly from the special needs trust. However, this may not be possible or convenient when dealing with issues like personal hygiene needs, gas, or clothing and a friend or family member will pay for these items with the expectation of reimbursement from the special needs trust. In some regions this reimbursement is treated as unearned income to the recipient. This interpretation diverges from federal regulations, but is a reality nonetheless. The use of credit cards is an easier way to deal with these types of purchases. Gift cards are generally treated as cash and are not suggested.

Vehicles. Vehicles are one of the most frequent significant purchases. There can be issues with insurance and ownership. If a trust is supervised by a probate court I strongly recommend prior court approval. If the vehicle is owned by the trust, there can be liability issues, which exposes the trust and puts it at risk in the event of an accident, damage or theft. If in a family member’s name alone, then there is no recourse if the vehicle is sold or transferred. When there is a responsible family member, friend or guardian of the beneficiary, the vehicle can be in their name, but the trust should place a lien on the vehicle to prevent unauthorized transfer. Creativity may be required depending on the policy in the beneficiary’s region.

Older adults. If the beneficiary is over age 65, some of the most typical disbursements are for bed-hold payments, non-covered medical expenses, guardianship expenses, translators, advocacy or additional care management services, and legal expenses.

Other expenses. There is no limit on the value of personal items, including computer or adaptive equipment, televisions, gaming devises, furniture, expenses to develop interests or skills, training or education.

A special needs trust must be prudently administered in the best interests of the beneficiary, while avoiding negative impact to the beneficiary’s benefit eligibility. This type of trust is extremely helpful in promoting a higher quality of life for a beneficiary. Because of the complexity, generally, professional guidance is recommended.

Should I apply for guardianship, and if so, when?

In New York, once your child reaches the age of eighteen, you will no longer be able to make legal decisions for him or her unless you are the legal guardian. Some people with special needs are capable of executing their own documents. If your minor child is developmentally disabled or intellectually disabled, then an “Article 17A” guardianship proceeding should be commenced six months before your child’s eighteenth birthday.

What government benefits are available to someone with special needs?

Supplemental Security Income (SSI) was created to ensure that the elderly, blind, and disabled have a guaranteed minimum monthly income for living expenses. Though it is administered by the Social Security Administration (SSA), eligibility is based on financial need, and payments are not dependent on any amount having been paid into the Social Security system (ie, work history).

People who qualify for SSI usually also qualify for Medicaid, a government program which covers many health care costs.
Social Security Disability Income (SSDI) pays benefits to those who are unable to work according to very strict Social Security definition of disability. Benefits continue until the beneficiary is able to work again or reaches retirement age (in which case disability benefits become retirement benefits). Unlike SSI, you must have paid Social Security payroll taxes to collect SSDI benefits. Eligibility and benefit amount depends on age and number of accumulated work credits. After two years of receiving SSDI benefits, the beneficiary automatically becomes eligible to receive Medicare, even if they are under age 65. Certain family members may also qualify for disability benefits, such as children of a covered worker.